Florida Usury Law Overview
Usury typically refers to the practice of charging interest on a loan, which exceeds the legally established maximum allowable rate. The concept of usury, and laws against it, have literally been around for thousands of years. Susan Lorde Martin, Financing Litigation On-Line: Usury & Other Obstacles, 1 DePaul Bus. & Com. L. J. 85, 89 (2002). The Old Testament commands that “[t]hou shall not lend upon usury to thy brother” or “take usurious interest from him.” The Bible, Deuteronomy 23:19; Leviticus 25:35.
The Roman Republic enacted laws in 340 B.C., which outlawed interest altogether. W. Visser & A. McIntosh, History of Usury Prohibition, A Short Review of the Historical Critique of Usury (1998). In 1933, the Florida Supreme Court explained, “[t]he very purpose of statutes prohibiting usury is to bind the power of creditors over necessitous debtors and prevent them from extorting harsh and undue terms in the making of loans.” Chandler v. Kendrick, 146 So. 551, 552 (Fla. 1933).
Florida’s Usury Law
Florida’s usury law is found in Fla. Stat. Ch. 687. In Florida, the maximum rate of interest of 18% on loans of less than $500,000. Fla. Stat. § 687.03. On loans that exceed $500,000, the maximum legal rate of interest is 25%. Fla. Stat. §§ 687.03, 687.071. It is a criminal offense — misdemeanor or felony — to provide loans which have effective interest rates of 25% or more, but less than 45%. Fla. Stat. §§ 687.071(2), (3). Interest rates that exceed 45% are punishable as a third degree felony. Fla. Stat. § 687.071(3).
If a court finds that a loan usurious, the consequences can be severe. First, the loan may become unenforceable in whole or in part. If a loan is deemed usurious, the lender forfeits all interest charged. Fla. Stat. § 687.04. With respect to loans deemed to be criminally usurious, in addition to forfeiting the interest, the entire debt becomes unenforceable. Fla. Stat. § 687.071(7).
Second, with respect to loans deemed usurious or criminally usurious, the lender may be liable to the borrower for damages in the amount double the amount of interest taken. Fla. Stat. §§ 687.147, 687.04. Third, with respect to any usurious loan, the lender may be liable for the borrower’s attorneys’ fees. Id.
The Substance of the Transaction Rather than its Form Determines Whether Usury Law Applies
At the outset, it is important to note that usury laws apply to interest charged on loans of money or forbearances of the collection of money. Therefore, ordinarily, usury laws would not apply to other transactions, such as a lease. See 1 Equipment Leasing P 5.04 (2020) (“Generally, true lease transactions are exempt from usury limitations.”).
However, unscrupulous lenders might try to disguise an otherwise usurious loan as something other than a loan. For example, a loan to purchase business equipment might be labeled in the documentation as a “lease” of the business equipment in an attempt to avoid the usury law. Courts are not blind to this fact.
Therefore, “[s]ince the purpose of the usury statutes is to protect the needy borrower by penalizing the unconscionable money lender, for purposes of usury calculations, courts will look beyond the form of a transaction to its substance.” Rollins v. Odom, 519 So. 2d 652, 657 (Fla. 1st DCA 1988).
“In determining whether an agreement is usurious, the court may disregard the form of the agreement and consider the substance of the transaction.” Antonelli v. Neumann, 537 So. 2d 1027, 1029 (Fla. 3d DCA 1988). See also, Pinchuck v. Canzoneri, 920 So. 2d 713, 715 (Fla. 4th DCA 2006); Fla. Trading & Inv. Co., Inc. v. River Constr. Servs., Inc., 537 So. 2d 600, 602–03 (Fla. 2d DCA 1988).
Test for Usurious Transaction
The four prerequisites for proving a usurious transaction are:
- 1) an express or implied loan;
- 2) an understanding between the parties that the money must be repaid;
- 3) an agreement to pay a rate of interest in excess of the legal rate; and
- 4) a corrupt intent to take more than the legal rate for the use of the money loaned.
Antonelli v. Neumann, 537 So. 2d 1027, 1028 (Fla. 3d DCA 1988).
“When usury is raised as a defense, the borrower must affirmatively plead and establish the four elements of a usurious transaction by clear and satisfactory evidence.” Rollins v. Odom, 519 So. 2d 652, 657 (Fla. 1st DCA 1988) (citations omitted). In other words, “that the lender willfully and with corrupt intent charged or accepted more than the prohibited interest must be specifically and affirmatively pleaded and established by clear and satisfactory evidence.” Id. (quotation omitted).
“The lender’s corrupt and willful intent to charge a usurious interest rate is determined by a consideration of all the circumstances surrounding the transaction.” Rollins, 519 So. 2d at 657. “The lender’s testimony that he did not have an intent to charge and to receive interest in excess of the legal rate is not determinative of the question.” Id. (citation omitted) (emphasis added). “Rather, it is the fact that the lender consciously intends and does in fact make charges which result in usury that establishes the requisite element of corrupt intent.” Id. at 657–58.
“Corrupt intent is established if the evidence indicates the lender knowingly charged or received excessive interest considering all the circumstances surrounding the transaction.” Oregrund Ltd. P’ship v. Sheive, 873 So. 2d 451, 459 (Fla. 5th DCA 2004) (citation omitted). See also, Jersey Palm-Gross, Inc. v. Paper, 639 So. 2d 664, 668 (Fla. 4th DCA 1994) (“[T]he requisite intent was established by proving the lender’s knowledge of the amount of interest to be received and intent to receive the amount charged.”). Consequently, in some instances the documentation from the transaction alone may be “sufficient to support the claim that [lender] knowingly intended to receive an interest rate which exceeded the permissible statutory rate.” Oregrund Ltd. P’ship, 873 So. 2d at 459.
When the transaction at issue is not usurious on its face, i.e., the documentation does not appear to charge an illegal rate of interest, “the borrower has the burden of proving that the parties employed a corrupt device to conceal a usurious transaction and that it was in the full contemplation of the parties.” Antonelli, 537 So. 2d at 1029. In other words, in such a situation, the borrower is “free to demonstrate to the trial judge, and indeed ha[s] the burden to affirmatively plead and establish by clear and satisfactory evidence, that the substance of the transaction rather than the form of the contract should prevail and that the substance showed that the additional sums being repaid by [borrower] represented usurious interest.” Naples Cay Dev. Corp. v. Ferris, 555 So. 2d 1272, 1273 (Fla. 2d DCA 1989) (citations omitted).